How Climate Change May Affect Car Insurance Claims?

Climate change impacts more than just the weather, making summers hotter and winters colder. It is mainly about environmental issues and reshaping the financial world. Surprisingly, motor insurance is one of the industries taking a hard hit. Vehicle damage from natural disasters has been a significant component of motor insurance policies. Therefore, with the increasing number of damages to vehicles caused by natural disasters, motor insurance coverage and claims will face significant consequences.

Rise In Weather-Related Claims

The number of weather-related claims is constantly rising, reflecting the evident impact of climate change on daily life in the form of floods, hailstorms, cyclones, and heat waves. While natural disasters are included in comprehensive coverage, they are not central to motor insurance policies. However, specialised policies might be needed to cover weather-related damages with changing times.

Higher Premiums Due To Increased Risk

As the number of claims filed due to damages caused by natural disasters increases, the corresponding risk that the insurance company takes up in the form of coverage for such policies also increases.

As a rule of thumb for the motor insurance industry, with an increase in risk taken up by the insurance company, the corresponding premium rates also increase. Therefore, due to climate change, premiums for natural disaster damage will likely rise significantly.

More Exclusions In Policies

Exclusions are the things that the insurance company does not cover under the policy. As these are the damages for which the insurance company does not take accountability, they are excluded from the policy upfront. They are mentioned in the policy as exclusions. The reason for having exclusions is that these are often very high-probability damages, which are considered nearly unavoidable. Therefore, if damages caused by climate change become too frequent, they will be added to the exclusion list, increasing its length.

For example, damage due to waterlogging or storm surges may not be fully covered unless you have specific add-ons.

Greater Need for Add-Ons and Comprehensive Coverage

As the damages caused by climate change increase, policyholders will find it difficult to obtain a comprehensive motor insurance policy that provides coverage against natural disasters, which is already a long-standing exclusion. This gap between the demand and supply of a comprehensive policy will eventually lead to additional riders and add-ons being introduced. However, extra riders and add-ons are not bad news.

In several cases, it will be a more financially advantageous option. Instead of umbrella coverage for all-natural disasters that cost substantial money, you can get coverage only for those that prevail in your area.

FAQs

• Can I get insurance if I live in a flood-prone area?

Yes, but it may have a higher premium and limited coverage unless you purchase specific add-ons.

• What’s the best coverage type in extreme weather zones?

Comprehensive car insurance with engine and flood protection add-ons is ideal for areas with frequent weather events.

• Do insurance companies consider climate risk when pricing policies?

Yes, insurers now factor in local climate data and the frequency of natural disasters when determining premiums.

• How can I speed up my claim after a weather-related incident?

Keep photos, GPS proof, and service records ready; filing online immediately helps process claims faster.

• Will EV insurance be affected differently by climate change?

EVs are more vulnerable to water damage and may need specialised coverage, making their climate-related insurance slightly more complex.